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Family foundation - what is it and is it worth establishing
One of the many innovations in Polish Order to be introduced by the Polish Order is a family foundation. The project was submitted to the Ministry of Development and Technology by the family business community. According to the assumptions, the bill may be submitted to the parliament in the first half of 2022 and the act will enter into force on June 1, 2022.
The purpose of introducing the institution of the family foundation into Polish law is to improve the legal situation of family businesses, and more specifically their succession. This solution has already been introduced in many European countries such as Germany or Austria. It is a popular form of asset control in well-known multigenerational companies. Until now, due to the high costs of operating abroad, family foundations were available only to the largest companies. The solution is based on the fact that the company and the family are separated due to the fact that the foundation takes ownership of the property of the family.
The legal status of this foundation, i.e. a new legal entity, assumes that the company's headquarters will be located in Poland, and its establishment will require a founding deed or a will drawn up by a notary public, which includes a declaration on the creation of a family foundation. It will be a legal instrument completely different from commercial companies. Detailed tax regulations are not yet known at the current stage of works on the draft.
As we read on the gov.pl website, "the tasks of the family foundation include the collection, management and protection of property donated by the founder, in accordance with his will contained in the statute, (and) providing funds for the beneficiaries indicated by him, in particular his relatives and non-governmental organisations conducting public benefit activities. "
The Foundation may be created by one or more founders who have full legal capacity, in particular the right to freely dispose of their property. On the other hand, a natural person and a non-governmental organisation conducting public benefit activities can become the beneficiaries.
What, then, can the money from the foundation be used for? They can be used to finance the costs of living, education or medical assistance of the beneficiaries or the statutory objectives of the aforementioned non-governmental organization. The family business will therefore be owned by the foundation along with other accumulated goods, such as shares in companies, securities or real estate, and the family and its subsequent generations - beneficiaries.
The formal structure of the family foundation assumes the existence of a board in it and being subject to the internal supervision of the board of protectors. Beneficiaries, on the other hand, will form an assembly of beneficiaries that will confer in exceptional circumstances, e.g. supplementing the composition of a given body. Such a procedure will allow the family to have an impact on the activities of the family foundation, even when external managers sit on its board.
Why is it worth establishing the family foundation? On the gov.pl website we read that thanks to it "it is possible to plan business activities in the perspective of several generations, without worrying about the difficulties associated with inheriting shares in commercial companies" and that "it also facilitates the distribution of profits from family assets among people involved in the company's operations family and people who have chosen a different career path, without threats to the integrity of the family property and financial liquidity of companies in which the family foundation has shares. "
The purpose of establishing the family foundation is to enable the continuation of the family business in the hands of the founder's heirs. The longevity of the company is maintained by concentrating family control over the company's assets in one entity without partners and owners, thus preventing the dispersion of family capital, often resulting in a third party taking control of the company. Therefore, the mission of the foundation is to accumulate capital and multiply it for the next generations, in accordance with the idea that the company belongs not only to us, but also to our children and grandchildren. This allows flexibility in many areas, incl. to separate the role of the foundation's beneficiaries from those who decide about the future of the foundation's assets.
The main difference between a company and a foundation is that the heirs do not become partners of the foundation and their rights cannot be sold or transferred to the heirs. If the goal of the family is not to pass the company from generation to generation, and the successors want to be able to freely leave the family business and cash their shares, the family foundation may not be the best solution.
How to ensure the family foundation's success? Well, the success of this method of management depends on its good design in advance. Consider the roles each family member will play and what will happen with the company for generations to come. If we do not want our family business to follow in the footsteps of publicly traded companies with dispersed shareholders whose activities determine short-term profits, a foundation is a must.
What topics should you raise with your family in a conversation about establishing a family foundation? Here is the list:
- Separation of family property from company property - many family businesses operating in Poland focused on rapid development and did not take into account how much of the property contained in fixed assets is necessary for the operation of the company, and what part of it can be withdrawn from the company so that it could be help to pay for the living needs of the family.
- How do family members see their future - do they want to be active in the company, play a supervisory or decision-making role, or maybe choose a completely different career path, cutting themselves off from the family business?
- Succession plans - their preparation takes a long time and serves to unify the vision of common goals, principles of functioning and tasks of individual family members. In a conversation on this topic, it is worth not only the closest relatives, but also successors and other family members associated with the company, and sometimes even trusted third parties sitting on the company's management board, participate. The aim of the talks is to develop a coherent family position in the most important areas, very important for the effective functioning of the family business. On this occasion, it is possible to create a family constitution, i.e. a set of rules and regulations organizing relations at the meeting point of the company and the family.
- Review of the quality of real estate and fixed assets - the legal title of the real estate should be confirmed and the possibility of bringing the case to court should be ruled out, which would certainly burden the foundation's assets.
- What are the family's expectations of the company? - every expectation should be established, not only financial, but also social and educational and then you can include it in your statute.
- What will the foundation's purpose be? - it should be remembered that a family foundation does not only multiply the family property, but also finance the needs of its beneficiaries. Such needs may include education, integration of family members, purchase of shared real estate. The Foundation can also help in a potential crisis situation, e.g. of chronic diseases or the death of the beneficiary.
- Who and under what conditions can become a beneficiary? This is an important question because the beneficiaries derive financial benefits from the foundation. In this step, it is important to ensure that the expectations of the beneficiaries do not exceed the company's capabilities.
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